EUR/USD: weakening trend continues

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On Monday, trading on the euro closed down. After an unsuccessful attempt by buyers to take the price above 1.0630, the euro fell against the dollar to 1.0575. A touch of volatility was to be found during the day yesterday as news came in from France. Ex-Prime Minister Alain Juppe ruled out taking part in the French presidential elections.

The euro fell as US 10-year bond yields rose during trading in New York. US 10-year bond yields: 2.494% (up 0.72% from 06/03/17). In Asia, bond yields rose by 0.12% to 2.496%.

Market expectations:

In Asia, the euro is in a sideways trend, staying at around the 1.0581 level. From the intraday price model on the hourly timeframe, the euro is expected to fall further to 1.0563. The euro is unlikely to be able to make any gains against the dollar in the wake of the ECB’s meeting (on Thursday).If the target is reached during the European session, then we can expect a drop to 1.0550 when trading gets underway in the US.

Although the market now puts the probability of an interest rate hike by the Fed in March at 80%, the dollar will continue to receive support until their meeting on the 15^th of this month. CME Group’s FedWatch data shows that the likelihood of a rate hike has gone up from 79.7% to 86.4%, from 81.9% to 87.5%, and from 90.2% to 92.7% for March, May, and June respectively.

Day’s news (GMT+3):

• 10:00 Germany: factory orders (Jan);
• 11:00 Switzerland: foreign currency reserves (Feb);
• 11:30 UK: Halifax house prices (Feb);
• 13:00 Eurozone: GDP revised (Q4);
• 16:30 Canada: trade balance (Jan);
• 16:30 USA: trade balance (Jan);
• 18:00 Canada: Ivey Purchasing Managers Index (Feb);
• 18:00 USA: IBD/TIPP economic optimism (Mar);
• 23:00 USA: consumer credit change (Jan).

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.0563, high: 1.0599, close: 1.0569.

Disregarding the news from France, my predictions for Monday came off in full. Monday worked against Friday’s rally.

Trading on the EUR/USD pair is in a sideways trend at 1.0582. If we overlay the Fibonacci grid on the upwards movement from 1.0495 to 1.0640, then the correction was over 38%. The 50% mark is located 5 pips above the 67^th degree. The trend line on the current hourly bar runs through 1.0563.

Looking at cycles and historical patterns, I’m getting the idea that we should expect a further drop in the euro. I’m leaning towards a drop to 1.0599 (22.5 degrees). The first target for the 67^th degree is 1.0563 and the second is 1.0550 (61.8% of the growth from 1.0495 to 1.0640).

The Lb balance line and the trend line (average line with period 55) will act as a support for buyers. They may not be able to resist given that the ECB is meeting on Thursday. Keep an eye on the dynamics of US and German 10-year bond yields. US 10-year bond yields are set to surpass 2.52%. From there, a target of 2.55 will be made. If US 10-year bond yields rise sharply, we could see the euro fall to 1.0511 (112 degrees).

Positives for the euro (+):

Fundamental:

(+) US president Donald Trump favours a weaker dollar;

(+) The threshold for acceptable US government debt of 20.1 trillion USD may be reached by March this year. This will create headaches for new US president Donald Trump. A new law on the debt ceiling will come into force on the 16^th of March 2017;

(+) Greece may need less money than the IMF had planned for;

Technical (short-term):

(+) According to data from 28/02/17, large speculators on the Chicago Exchange have increased their short and long positions. Long positions have grown by 10,546 to 142,762 contracts, while short positions have grown by 4,293 to 187,304 contracts. Net short positions have fallen from 50,779 to 44,542 contracts.

(+) EURGBP (D): the cross is in a phase of growth. The AO and AC are moving downwards;

(+) EURGBP (W):  the CCI (20) and the Stochastic (5,3,3) are moving downwards;

(+) EURUSD (D): between the price and the CCI is a bullish divergence, the price rebounded from the minimum on 22/02/17, the CCI has intersected the -100 level from bottom to top, the fast line has intersected the slow line on the Stochastic (5,3,3) and the trend line from 02/02/17 has been broken through;

(+) EURUSD (W): the Stochastic (5,3,3) is trying to reverse upwards;

(+) EURUSD (M): the Stochastic (5,3,3) is moving upwards;

Negatives for the euro (-):

Fundamental:

(-) The ECB has no plans to curtail its QE program. According to the minutes of the latest meeting, most members of the Governing Council don’t believe it necessary to reduce the amount of stimulus (long-term impact);

(-) According to CME Group FedWatch Tool, the probability of a rate hike in March has grown from 79.7% to 86.4%, in May from 81.9% to 87.5%, and in June from 90.2% to 92.7%;

(-) There’s a high level of political uncertainty in Europe (French elections and Brexit). Ex-Prime Minister Alain Juppe has ruled himself out of participation in the French presidential elections;

(-) Greece is unable to reach a deal with its creditors for financial assistance;

(-) The ECB will hold a meeting on Thursday;

Technical factors (short-term):

(-) According to data from 28/02/17, small speculators have increased their short positions by 1,481 contracts and reduced their long positions by 210;

(-) German 10-year bond yields: 0.340% (down 1.16% from 06/03/17). US 10-year bond yields: 2.494% (up 0.72% from 06/03/17) In Asia, bond yields grew by 0.12% to 2.496%;

(-) Long/short ratio as of 7:30 EET: 43%/56%, lots: 14073/18231 (previous day: 15857/13262), positions: 40401/44557 (previous day: 38445/28152)

(-) EURUSD (W): AO and AC are moving downwards;

(-) EURGBP (D): the cross has reached the trend line. Buyers are attempting to induce a rebound from it. The Stochastic (5,3,3) has crossed downwards.

Built into the price:

(-) President of the Philadelphia Fed, Patrick Harker, has hinted at a rate hike in March;

(-) President of the Dallas Fed, Kaplan, says that it’s better to raise rates sooner rather than later;

(-) President of the San Francisco Fed, John Williams, says that March is a good time for the FOMC to seriously consider a rate hike;

(-) FOMC member Lael Brainard says that the US economy is growing and that a rate hike would soon be appropriate;

(-) Head of the FOMC, Janet Yellen, has said that interest rates might be raised in March;

(-) Head of the Fed in Richmond, Lacker, has said that losing control over inflation could prove very costly;

(-) Vice-president of the Federal Reserve, Stanley Fischer, echoes his colleagues’ comments about rate hikes;

(+) François Bayrou, leader of the “Democratic Movement” party, has ruled out running for the presidency and thrown his weight behind independent candidate Emmanuel Macron;

(+) Marine Le Pen has had her EU parliamentary immunity from prosecution lifted for political reasons.